New Delhi: Reliance Infratel Ltd, the telecom?infrastructure?firm that is part of the Reliance-Anil Dhirubhai Ambani Group (R-Adag), needs to export products and services worth Rs7,800 crore over the next eight years or pay a duty of Rs1,555.7 crore, according to documents filed by the firm with the stock market regulator, the Securities and Exchange Board of India (Sebi).
Currently, the firm does not have any export products or services.
Reliance Infratel has been importing some of the equipment that goes into the creation of telecom infrastructure and on 9 January obtained an import licence under an export promotion scheme called the Export Promotion Capital Goods (EPCG) programme, which allows a company to import equipment, plant and machinery at a lower duty of 5%, provided it exports eight times the duty saved in eight years.
For example, if a company imports equipment worth Rs10,000 crore and the normal import duty is 10%, it would mean a duty payment of Rs1,000. However, under the EPCG scheme, firms pay only 5% import duty, or Rs500 crore. But then the importing firm has to export Rs4,000 crore worth of goods/services over the next eight years — or eight times the amount of duty saved.
“The exports made by the Reliance-Anil Dhirubhai Ambani Group will enable the group (including Reliance Infratel) to meet all its export obligations under the EPCG scheme,” an R-Adag spokesperson said in response to an email questionnaire asking how Reliance Infratel would fulfil its obligation. The spokesperson did not detail R-Adag’s current export level nor how much each company within the group exports, except to say, “based on our conservative estimates, the group exports will be always greater than group’s export liabilities.”
The person also did not put a number to Reliance Infratel’s imports. However, based on the penal duty of Rs1,555.7 crore (the duty saved plus an annual interest of 15%) and the fact that the firm paid a duty of 5% against the normal 7.5%, saving 2.5 percentage points, the total value of imports works out to Rs38,880 crore.
Firms that want to avail lower duty under this scheme have to detail at the time of application as to how much they plan to import and how they are planning to meet the export obligation, said R. Sriram Balakrishnan, associate director of Ernst and Young, an audit?and consulting firm.?R-Adag didn’t provide details of its application for the EPCG scheme.
As of December 2007, Reliance Infratel has 23,434 communication towers that are “ready for installation”. An additional 23,000 towers will be ready by March. As per the documents filed with Sebi, the firm plans to spend Rs4,624 crore to install 16,000 towers.
Commenting without specific reference to Reliance Infratel, Balakrishnan said even if group companies are fulfilling the export obligations, there are conditions that need to be fulfilled. For instance, group firms can only show exports that are higher than the average of the last three years’ exports. If a group firm, for example, exported goods or services worth Rs500 crore on average in the last three years, only exports in excess of Rs500 crore can be shown as exports for the firm fulfilling the EPCG scheme.
Apart from having to pay a penal duty, companies that fail to honour their export commitments can also be asked to pay a penalty by the Directorate General of Foreign Trade (DGFT).
Companies that are part of R-Adag, and those controlled by R-Adag head Anil Ambani’s estranged elder brother Mukesh Ambani have used EPCG schemes to good effect over the years. The refinery at Jamnagar being set up by Reliance Industries Ltd, controlled by Mukesh Ambani, has imported equipment under the scheme.
The government has been asking DGFT to get tough with companies that use the EPCG licence to import capital goods and then do not meet their export obligation.
As per government data, between?1994-95 and 2003-04,?export obligations related to a little over half the EPCG licences issued in this period were met.